Mortgage Forbearance: A Homeowners Guide
Mortgage forbearance has been a saving grace for many homeowners during the COVID-19 pandemic. It’s because it allows them to temporarily suspend or lower their mortgage payments if they are experiencing financial hardship due to a job loss or other qualifying event.
But with so many people out of work and struggling to make ends meet, you may be wondering if you qualify for forbearance on your mortgage. In this article, we will explore who can qualify for forbearance and what it is that actually.
If you are a homeowner facing financial hardship due to the COVID-19 pandemic, you may be wondering if mortgage forbearance is a good idea for you. Mortgage forbearance allows homeowners to temporarily stop making payments on their loan while they get back on their feet.
What Is Mortgage Forbearance?
When a homeowner is struggling to make their mortgage loan payments, they may be able to qualify for mortgage forbearance. This means that the lender agrees to temporarily reduce or suspend the payments. The borrower must then make up the missed payments at a later date.
In other words, mortgage forbearance is when your lender agrees to let you temporarily stop making payments on your mortgage. This can be a helpful option if you are experiencing financial hardship due to a job loss or other reasons related to the pandemic.
It can be a great option for homeowners who are facing temporary financial hardship, such as job loss or medical bills. On top of that, it can also help them keep their home and avoid foreclosure.
To qualify for mortgage forbearance, borrowers typically need to demonstrate that they have a good faith effort to make their payments on time but are currently unable to do so due to financial hardship. Borrowers will also need to provide documentation of their hardship to the lender.
The very important thing to note is that while mortgage forbearance can provide some much-needed relief in the short term, it’s not a long-term solution. You will still be responsible for paying back any missed or reduced payments once your forbearance period ends. If you are unable to do so, you could face foreclosure.
In case you are struggling to make your mortgage loan payments on time, talk to your lender about whether forbearance might be an option for you.
How Does Mortgage Forbearance Work?
In case you are having trouble making your mortgage payments, you may be able to get a forbearance on your loan. This means the lender agrees to let you make smaller payments or skip payments for a temporary period. Once the forbearance period ends, you will need to resume making your regular mortgage payments.
Forbearance isn’t a right fit for everyone. It can extend the length of your loan and increase the amount of interest you pay over time. But if you are facing a short-term financial hardship, such as a job loss or medical emergency, it may be worth considering entering this program.
Before you apply for mortgage forbearance, talk to your loan servicer to see if there are other options that might be better for you in the long run. For example, they may be able to offer you a different repayment plan that doesn’t require skipping any payments. Another thing they can do is give you an extension on your already existing mortgage.
Mortgage Forbearance: Pros and Cons
When you can’t make your mortgage payments, one option you may have is mortgage forbearance. This is when your lender agrees to temporarily reduce or suspend your payments. While this can be a lifesaver in the short term, there are some pros and cons to consider before deciding if it’s the right choice for you.
Pros of mortgage forbearance:
- It can allow you to avoid foreclosure and stay in your house
- It can be used for short-term needs
Cons of mortgage forbearance:
- The payments you have missed will continue to appear even when the forbearance period ends
- Your mortgage can be higher after the forbearance
- Doesn’t help if you are struggling to pay out your mortgage in general
Pros
Taking out mortgage forbearance can be a very beneficial tool for short-term needs. It can help you pause your payments for a certain period of time. This can work wonders for people who have lost their jobs.
On top of that, it can help you stay in your house and help you avoid foreclosure. A lot of people find this very appealing when they decide to go with forbearance.
And finally, forbearance can help you get back on track with your monthly mortgage payments. This is because it will give you time and postpone the payments for a certain period of time.
Cons
If you are considering mortgage forbearance, it’s important to understand the potential risks and drawbacks.
For one, mortgage forbearance typically only lasts for a maximum of 12 months. So if you are facing long-term financial hardship, this likely isn’t the best solution.
Additionally, when you enter into forbearance, you basically agree to defer payments on your loan. This means that the total amount you owe will increase because interest will continue to accrue during this time.
Finally, as we have mentioned above, your credit score may take a hit if you miss payments or enter into forbearance.
Mortgage Forbearance vs. Loan Modification: What’s the Difference?
When you can’t make your mortgage payment, you might be able to get some relief through a forbearance or loan modification. But what is the difference between these two options?
With forbearance, your lender agrees to temporarily reduce or suspend your payments. This can be helpful if you are facing temporary financial hardship, such as a job loss or medical bills. Once your situation improves, you will need to make up the missed payments plus any interest that accrued during the forbearance period.
Loan modification permanently changes the terms of your loan, which can include reducing the interest rate, extending the repayment period, or changing the type of loan from an adjustable-rate mortgage to a fixed-rate mortgage. A loan modification can make your payments more affordable and help you keep your home.
Choosing the right one for you depends solely on you and your financial situation. We do suggest you contact your financial advisor before making any decision.
Who Can Qualify for Mortgage Forbearance?
If you are experiencing financial hardship due to the coronavirus pandemic, you may be able to qualify for mortgage forbearance. Mortgage forbearance allows you to temporarily stop making your mortgage payments or make reduced payments.
To qualify for mortgage forbearance, you must:
- Be experiencing financial hardship due to the coronavirus pandemic
- Contact your lender and explain your situation
- Request forbearance in writing
Once you have done this, if your lender agrees to grant you forbearance, they will work with you to determine the terms of your agreement.
This can include how long your payments will be suspended or reduced, as well as any other terms and conditions.
So, if right now you are asking yourself when does mortgage forbearance end, well, it depends on the agreement you made with your lender.
Does Mortgage Forbearance Affect Your Credit?
When you forbear on your mortgage, your lender agrees to let you make reduced or no payments for a set period of time. This can be an attractive option if you are facing financial hardship, such as a job loss or medical emergency.
But what many people don’t realize is that forbearing on your mortgage can have a negative effect on your credit score. And in some cases, this effect can last for years.
Here’s how it works: When you forbear on your mortgage, your lender reports the missed payments to the credit bureaus. These missed payments are then reflected on your credit report, and they can cause your score to drop.
The good news is that there are some steps you can take to minimize the damage to your credit score. For example, you can ask your lender to report the forbearance period as “current, not delinquent.” This will help to prevent your score from dropping too much.
You should also make sure to keep up with other payments, such as your credit card bills and car payments. If you miss any of these payments, it will only compound the problem and further damage your credit score.
In case you are facing financial hardship and considering mortgage forbearance, make sure to weigh the pros and cons carefully before making a decision. And if you do decide to go ahead with it, take steps to protect your credit score as much as possible.
Alternatives to Mortgage Forbearance
Alternatives to mortgage forbearance may include working with your lender to develop a new repayment plan, making a lump sum payment, or refinancing your loan.
We will give you some more options you can consider also.
- Borrow from friends and family
- Think about no closing cost refinancing
- Reassessing your tax deductions
We do strongly advise, in case you are having difficulties making your payments on time, to consult with your lender and see what you can do next.
Final Thoughts
COVID-19 has impacted us all. Some of us lost a job, and some of us are still feeling the bad impact that it had on us.
Mortgage forbearance can be great for getting that short-term relief and postponing your payments for a set period of time. We made this article to help you understand it better and to know what you can do next if you find yourself in this situation.
In case you are already having a problem keeping up with your mortgage payments, we suggest you contact your lender as soon as possible and try to negotiate a better deal.
